WILL CARLETON ACADEMY Report on Financial Statements (with required supplementary information) For the Fiscal Year Ended June 30, 2017

Transcription

1 WILL CARLETON ACADEMY Report on Financial Statements (with required supplementary information) For the Fiscal Year Ended June 30, 2017

2 Will Carleton Academy Financial Report For the Fiscal Year Ended June 30, 2017 Table of Contents Independent Auditor's Report 3-5 Management's Discussion and Analysis 6-13 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Balance Sheet - Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balance - Governmental Fund Reconciliation of Statement of Revenues, Expenditures and and Changes in Fund Balances of Governmental Fund to the Statement of Activities 20 Notes to the Financial Statements Required Supplementary Information 36 Budgetary Comparison Schedule - General Fund Independent Auditor's Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards 39-40

3 1 CLINTON MEYERING, C.P.A. RANDALL H. DARNELL, C.P.A. DALE A. VESTRAND, C.P.A. DARNELL & MEYERING, P.C. Certified Public Accountants EUREKA ROAD SUITE 300 TAYLOR, MICHIGAN (734) FAX (734) MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS Independent Auditor s Report Board of Directors Will Carleton Academy 2001 W. Hallett Road Hillsdale, MI Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and each major fund of Will Carleton Academy (the Academy) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Academy s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not 3

4 for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of Will Carleton Academy as of June 30, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 6 through 13 and 37 through 38 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, are required by the Governmental Accounting Standards Board, who considers them to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 3, 2017, on our consideration of Will Carleton Academy s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government 4

5 Auditing Standards in considering the Academy s internal control over financial reporting and compliance. DARNELL & MEYERING, P.C. Taylor, Michigan October 3,

6 MANAGEMENT S DISCUSSION AND ANALYSIS This section of Will Carleton Academy s (the Academy) annual financial report presents our discussion and analysis of the public school academy s financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the Academy s financial statements, which immediately follow this section. Financial Highlights The Academy s net position was $1,444,272 Blended enrollment for state aid purposes was for the year ended June 30, Overview of the Financial Statements This annual report consists of three parts management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the Academy. The first two statements are Charter-wide financial statements that provide both short-term and long-term information about the Academy s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the Academy, reporting the Academy s operations in more detail than the Charter-wide statements. The governmental funds statements tell how basic services like regular education were financed in the short-term as well as what remains for future spending. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the Academy s budget for the year. Figure A-1 shows how the various parts of the annual report are arranged and related to one another. 6

7 Figure A-1 Organization of Will Carleton Academy Annual Financial Report Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Charter-wide Financial Statements Fund Financial Statements Notes to Financial Statements Summary Detail Figure A-2 summarized the major features of the Academy s financial statements, including the portion of the Academy s activities they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis highlights the structure and contents of each of the statements. 7

8 Figure A 2 Major Features of the Charter-Wide and Fund Financial Statements Scope Required financial statements Accounting basis and measurement focus Type of asset/deferred outflows of resources/liability/ deferred inflows of resources information Type of inflow/outflow information Charter-wide statements Entire Academy (except fiduciary funds) * Statement of net position * Statement of activities Accrual accounting and economic resources focus All assets, deferred outflows of resources, liabilities, and deferred inflows of resources both financial and capital, shortterm and long-term All revenues and expenses during year, regardless of when cash is received or paid Fund financial statements Governmental funds All activities of the Academy that are not fiduciary * Balance sheet * Statement of revenues, expenditures and changes in fund balances Modified accrual accounting and current financial resources focus Generally assets and deferred outflows of resources expected to be used up and liabilities and deferred inflows of resources that come due during the year or soon thereafter; no capital assets or long-term liabilities included Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and the related liability is due and payable 8

9 Charter-wide statements The Charter-wide statements report information about the Academy as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the Academy s assets, deferred outflows of resources (if any), liabilities, and deferred inflows of resources (if any). All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two Charter-wide statements report the Academy s net position and how it has changed. Net position the difference between the Academy s assets, deferred outflows of resources (if any), liabilities, and deferred inflows of resource (if any), are one way to measure the Academy s financial health or position. Over time, increases or decreases in the Academy s net position is an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the Academy, you need to consider additional non-financial factors such as changes in the Academy s enrollment, the condition of school buildings and other facilities, and the Academy s ability to be competitive with other public school academies and area school districts. Fund financial statements The fund financial statements provide more detailed information about the Academy s funds, focusing on its more significant or major fund not the Academy as a whole. Funds are accounting devices the Academy uses to keep track of specific sources of funding and spending on particular programs: Governmental activities The Academy s basic services are included in the general fund, such as regular and special education and administration. State foundation aid finances most of these activities. The Academy has three kinds of funds: General Fund Most of the Academy s basic services are included in governmental funds which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Academy s programs. Because this information does not encompass the additional long-term focus of the Charter-wide statements, we provide additional information with the governmental funds statement that explains the relationship (or differences) between them. Debt Service Fund The Academy makes long term principal and interest payments from the Debt Service Fund. 9

10 Capital Projects Fund The Academy acquires buildings, land, furniture and equipment through the Capital Projects Fund. The Capital Projects Fund was inactive for the entire year. Financial analysis of the Academy as a whole Net position - the Academy s combined net position was $1,444,272 on June 30, See Figure A 3. The total revenues were $2,522,038. State aid foundation allowance included in revenue from state sources accounts for 92 percent of the Academy s revenue. The total cost of instruction was $1,509,630. The total cost of support services were $830,158. The Academy s stable net position is the product of many factors. The primary reasons are the number of students enrolled and the management of expenses to bring them in line with the Academy s revenue. Academy governmental activities The state aid was $7,511 per pupil during the school year. The school board oversaw the Academy s financial activities while the administration carefully managed expenses. Figure A-3 Will Carleton Academy Assets Current assets $ 1,080,099 $ 1,077,044 Non-current assets 320, ,837 Capital assets 2,289,911 2,305,274 3,690,555 3,704,155 Liabilities Current liabilities 289, ,807 Noncurrent liabilities 1,956,766 1,985,000 Total liabilities 2,246,283 2,190,807 Net position: Net investment in capital assets 283, ,274 Restricted for debt service 320, ,118 Unrestricted 839, ,956 Total net position $ 1,444,272 $ 1,510,348 10

11 Figure A-4 Changes in Will Carleton Academy's Net Position Revenues: Program revenues: Federal and state categorical grants $ 192,462 $ 153,833 General revenues: State aid - unrestricted 2,307,383 2,479,833 Investment Other 21,803 40,124 Total revenues 2,522,038 2,673,981 Expenses: Instruction 1,509,630 1,491,435 Support services 830, ,624 Athletic services 31,703 30,855 Interest expense and fees 162, ,139 Unallocated depreciation 53,685 54,257 Total expenses 2,588,113 2,647,310 Change in net position $ (66,075) $ 26,671 Financial analysis of the Academy s funds The stable financial performance of the Academy as a whole is reflected in its governmental fund as well. As the Academy completed the year, its governmental funds (General) reported a fund balance of $904,959. The Academy s debt service fund reported a fund balance of $320,545. The General Fund transferred $206,113 to the Debt Service Fund for debt service requirements. General fund budgetary highlights Over the course of the year, the Academy revised the annual operating budget once. The budget amendment fell into several categories: Changes were made to account for student enrollment counts, federal funds, and changes in assumptions (e.g. staffing changes, repairs and maintenance, and supply costs) since the original budget was adopted. While the Academy s final budget for the general fund anticipated revenues would be under expenditures and transfers by ($135,162), the actual results for the year showed revenues over expenditures and transfers of ($74,755). 11

12 Capital asset and debt administration Capital assets At June 30, 2017, the Academy had invested $2,289,911 in capital assets consisting primarily of land, computer equipment, furniture and fixtures, buildings and improvements, and land improvements, net of accumulated depreciation. More detailed information about capital assets can be found in Note 5 to the financial statements. Total depreciation expense for the year was $83,529. The Academy s capital assets are as follows: Figure A-5 Will Carleton Academy's Capital Assets Accumulated Depreciation Net Book Net Book Cost & Amortization Value Value Land $ 76,523 $ - $ 76,523 $ 76,523 Computer equipment 157, ,387 48,620 13,593 Furniture and fixtures 243, ,554 80,016 66,580 Buildings and improvements 2,716, ,130 2,032,258 2,090,513 Land improvements 123,576 71,082 52,494 58,065 Total $ 3,317,064 $ 1,027,153 $ 2,289,911 $ 2,305,274 Long-term debt At year end the Academy had $2,006,140 in installment obligations. (More detailed information about the Academy s long-term liabilities is presented in Note 6 to the Financial Statements). Figure A-6 Will Carleton Academy's Outstanding Long-term Debt Revenue bonds $ 1,985,000 $ 2,030,000 John Deere loan 21,140 - Total $ 2,006,140 $ 2,030,000 12

13 Factors bearing on the Academy s future At the time these financial statements were prepared and audited, the Academy was unaware of existing circumstances that could significantly affect its financial health in the future. The foundation allowance (state aid funding) from the State of Michigan is expected to increase to $7,631. Contacting the Academy s financial management This financial report is designed to provide our students, parents and creditors with a general overview of the Academy s finances and to demonstrate the Academy s accountability for the money it receives. If you have questions about this report or need additional information, contact the Academy s office at Evergreen, Flat Rock, Michigan

14 Will Carleton Academy Statement of Net Position June 30, 2017 Assets Governmental Activities Current assets: Cash and equivalents $ 490,465 Receivables: Other governmental units 464,634 Prepaid expenses 125,000 Total Current assets 1,080,099 Noncurrent assets: Restricted cash - debt service 320,545 Capital assets 3,317,064 Less accumulated depreciation (1,027,153) Total Noncurrent assets 2,610,456 Total Assets 3,690,555 Liabilities Current liabilities: Accounts payable 9,497 Accrued liabilities 525 Accrued interest 65,003 Accrued salaries and benefits 152,514 Accrued oversight fees 12,604 Current portion of long term obligations 49,374 Total Current liabilities 289,517 Noncurrent liabilities: Noncurrent portion of long term obligations 1,956,766 Total Noncurrent liabilities 1,956,766 Total Liabilities 2,246,283 Net position: Net investment in capital assets 283,771 Restricted for debt service 320,545 Unrestricted 839,956 Total Net Position $ 1,444,272 The notes to the financial statements are an integral part of this statement. 14

15 Will Carleton Academy Statement of Activities Year Ended June 30, 2017 Governmental Activities Net (expense) Program Revenues Revenue and Charges for Operating Grants Changes in Functions/Programs Expenses Services & Contributions Net Position Governmental activities: Instruction $ 1,509,630 $ - $ 192,462 $ (1,317,168) Support services 830, (830,158) Athletic services 31, (31,703) Interest expense and fees 162, (162,937) Unallocated depreciation 53, (53,685) Total governmental activities $ 2,588,113 $ - $ 192,462 (2,395,651) General revenues: State of Michigan school aid unrestricted 2,307,383 Investment revenue 390 Miscellaneous 21,803 Total general revenues 2,329,576 Change in net position (66,075) Net position beginning of year 1,510,347 Net position, end of year $ 1,444,272 The notes to the financial statements are in integral part of this statement. 15

16 Will Carleton Academy Balance Sheet Governmental Funds June 30, 2017 Total General Debt Governmental Fund Service Funds Assets: Cash and equivalents $ 490,465 $ 320,545 $ 811,010 Receivables: Other governmental units 464, ,634 Prepaid expenditures and deposits 125, ,000 Total assets 1,080, ,545 1,400,644 Liabilities and Fund Balance Liabilities: Accounts payable $ 9,497 $ - $ 9,497 Accrued oversight fees 12,604-12,604 Accrued liabilities Accrued Salaries and Benefits 152, ,514 Total liabilities 175, ,140 Fund balances: Nonspendable for prepaid expenditures 125, ,000 Restricted for debt service 86, , ,898 Unassigned 693, ,606 Total fund balances 904, ,545 1,225,504 Total Liabilities and Fund Balances $ 1,080,099 $ 320,545 $ 1,400,644 16

17 Total governmental fund balances $ 1,225,504 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the government funds The cost of capital assets is $ 3,317,064 Accumulated depreciation is (1,027,153) 2,289,911 Long term ballooned liabilities are not due and payable in the current period and are not reported in the governmental funds Long term obligations (2,006,140) Accrued interest payable is not included as a liability in governmental funds (65,003) Net position of governmental activities $ 1,444,272 The notes to the financial statements are an integral part of this statement. 17

18 Will Carleton Academy Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds Year Ended June 30, 2017 Total General Debt Governmental Fund Service Funds Revenues: Local sources $ 21,848 $ 345 $ 22,193 State sources 2,404,821-2,404,821 Federal sources 95,024-95,024 Total revenues 2,521, ,522,038 Expenditures: Current: Instruction: Basic programs 1,348,418-1,348,418 Added needs 141, ,473 Total instruction 1,489,891-1,489,891 Support services: Pupil support 2,990-2,990 Improvement of instruction 5,488-5,488 Library 13,777-13,777 Technology 44,313-44,313 General administration 189, ,872 School administration 322, ,202 Business and fiscal services 15,513-15,513 Operations and maintenance 237, ,419 Central 58,307-58,307 Athletics 31,703-31,703 Total support services 921, ,584 18

19 Total General Debt Governmental Fund Service Funds Debt service: Principal retirements - 45,000 45,000 Interest & fiscal charges - 162, ,750 Total expenditures 2,411, ,750 2,619,225 Excess (deficiency) of revenues over expenditures 110,218 (207,405) (97,187) Other financing sources (uses): Operating transfers in - 206, ,113 Operating transfers out (206,113) - (206,113) Loan proceeds 21,869-21,869 Loan principle payments (729) - (729) Total other financing sources (uses): 184, , ,086 Net change in fund balances (74,755) (1,292) (76,047) Fund balances: Beginning of year 979, ,837 1,301,551 End of year $ 904,959 $ 320,545 $ 1,225,504 The notes to the financial statements are an integral part of this statement. 19

20 Will Carleton Academy Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of Governmental Funds To the Statement of Activities Year Ended June 30, 2017 Net change in fund balances total governmental funds Increase $ (76,047) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. In the statement of activities, these costs are allocated over their estimated useful lives as depreciation and amortization Capital outlay 68,167 Depreciation and amortization expense (83,529) Repayments of principal on long-term debt is an expenditure in the governmental funds, but not in the statement of activities (where it is a reduction of liabilities). 45,729 Proceeds from a new loan are an other financing source in the governmental funds, but not in the statement of activities. Loan proceeds increase the long term debt on the statement of net assets. (21,869) Accrued interest is recorded in the statement of activities when incurred; it is not recorded in the governmental funds until it is paid. Accrued interest payable beginning of the year 66,477 Accrued interest payable end of the year (65,003) Change in net position of governmental activities $ (66,075) The notes to the financial statements are an integral part of this statement. 20

21 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 Note 1. Summary of Significant Accounting Policies The accounting policies of Will Carleton Academy (the Academy) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the significant accounting policies used by the Academy. A. Reporting Entity The Academy is a public school academy as part of the Michigan Public School System under Public Act No. 362 of 1993 and is subject to the leadership and general supervision of the State Board of Education. Hillsdale Intermediate School District is the authorizing body of the Academy and has contracted with the Academy confirming the status of the public school academy. The contract with Hillsdale Intermediate School District expires on June 30, The Academy s school board is approved by the authorizing body and is authorized to manage the property and affairs of the Academy. The Academy s reporting entity does not include any component unit within its financial statements as defined in Governmental Accounting Standards Board Statements Nos. 14 and 39. B. Charter-Wide and Fund Financial Statements CHARTER-WIDE STATEMENTS The charter-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the Academy. For the most part, the effect of interfund activity has been removed from these statements. The charter-wide financial statements categorize primary activities as either governmental or business type. All of the Academy s activities are classified as governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers who purchase, use or directly benefit from goods or services by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. State Foundation Aid and other unrestricted items are not included as program revenues but instead as general revenues. 21

22 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) In the charter-wide statement of net position, the governmental activities column (a) is presented on a consolidated basis, (b) and is reported on a full accrual, economic resource basis which recognizes all long-term assets and receivables as well as long-term debt and obligations. The Academy first utilizes restricted resources to finance qualifying activities. The charter-wide statement of activities reports both the gross and net cost of each of the Academy's functions. The functions are also supported by general government revenues (State Foundation Aid, certain intergovernmental revenues, investment income and other revenue). The statement of activities reduces gross expenses by related program revenues and operating grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (State Foundation Aid, intermediate district sources, interest income and other revenues). The Academy does not allocate indirect costs. This charter-wide focus is more on the sustainability of the Academy as an entity and the change in the Academy's net position resulting from the current year's activities. Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. FUND BASED STATEMENTS Governmental funds are those funds through which most Academy functions typically are financed. The acquisition, use and balances of the Academy s expendable financial resources and the related current liabilities are accounted for through governmental funds. The Academy reports the following major funds: The general fund is the Academy s primary operating fund. It accounts for all financial resources of the Academy, except those required to be accounted for in another fund. The debt service fund accounts for the servicing of general long-term debt. 22

23 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) Additionally, the Academy reports the following as non-major fund type; The capital projects fund accounts for acquisitions of buildings, land, furniture and equipment. There was no activity in the capital projects fund in the current year. C. Measurement Focus, Basis of Accounting and Basis of Presentation Accrual Method The charter-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the charter-wide financial statements to the extent that those standards do not conflict with or contradict guidance of the Government Accounting Standards Board. Modified Accrual Method Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Academy considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, if any, are recorded only when payment is due. State and federal aid and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the Academy. 23

24 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) State Revenue The State of Michigan utilizes a foundation grant approach which provides for a specific annual amount of revenue per pupil based on a statewide formula. The foundation is funded from state and local sources. Revenues from state sources are primarily governed by the School Aid Act and the School Code of Michigan. The Michigan Department of Education administers the allocation of state funds to the charter school based on information supplied by the schools. For the year June 30, 2017, the foundation allowance was based on the pupil membership counts taken in October 2016 and February of The state portion of the foundation is provided primarily by a state education property tax millage of 6 mills on Principal Residence Exemption (PRE) property an allocated portion of state sales and other taxes. The state revenue is recognized during the foundation period and is funded through payments from October, 2016 to August, Thus, the unpaid portion at June 30 is reported as due from other governmental units. The Academy also receives revenue from the State to administer certain categorical education programs. State rules required that revenue earmarked for these programs be expended for its specific purpose. Categorical funds received, which are not expended by the close of the fiscal year, are recorded as unearned revenue. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. D. Other Accounting Policies 1. Deposits and Investments The Academy's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. The Academy reports its investments in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools and GASB Statement No. 40, Deposit and Investment Risk Disclosure. Under these standards, certain investments are valued at fair value as determined by quoted market prices, or by estimated fair values when quoted market prices are not available. The standards also provide that certain investments are valued at cost (or amortized cost) when they are of a short-term duration, the rate of return is fixed, and the Academy intends to hold the investment until maturity. 24

25 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) State statutes authorize the Academy to invest in bonds and other direct and certain indirect obligations of the U.S. Treasury; certificates of deposit, savings accounts, deposit accounts, or depository receipts of a bank, savings and loan association, or credit union, which is a member of the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation, or National Credit Union Administration, respectively; in commercial paper rated at the time of purchase within the three highest classifications established by not less than two standard rating services and which matures not more than 270 days after the date of purchase. The Academy is also authorized to invest in U.S. Government or federal agency obligation repurchase agreements, bankers acceptances of U.S. Banks, and mutual funds composed of investments as outlined above. At June 30, 2017, the Academy had $321,042 of money market funds. 2. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the charter-wide and fund financial statements. 3. Capital Assets Capital assets, include land, buildings, furniture, and equipment are reported in the applicable governmental activities column in the charter-wide financial statements. Capital assets are defined by the Academy as assets with an initial individual cost of more than $1,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair and maintenance that do not add to the value or materially extend asset life are not capitalized. The Academy does not have infrastructure type assets. Depreciation and amortization on all assets is provided using the straight-line method over the following useful lives: Computers Furniture and fixtures Land improvements Building improvements Buildings 5 years 5-20 years 20 years 7-30 years 50 years 4. Deferred Outflows/Inflows In addition to assets, the statement of net position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, 25

26 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Academy does not have any outflows to report in the statement of net position and/or balance sheet as of June 30, In addition to liabilities, the statement of net position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until then. The Academy does not have any inflows to report in the statement of net position and/or balance sheet as of June 30, Long-term obligations In the charter-wide financial statements, long-term debt obligations are reported as liabilities on the statement of net position. Debt premiums and discounts are deferred and amortized over the life of the debt using the straight-line method of the old debt. The difference between the reacquisition price and the net carrying amount of the old debt are reported as deferred outflow of resources or deferred inflow of resources. Bond issuance costs are expensed at the time they are incurred. In the fund financial statements, governmental fund types recognize debt premiums and discounts, as well as debt issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 6. Governmental Fund Balance The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendable fund balance amounts that are not in a spendable form (such as inventory) or are required to be maintained intact; Restricted fund balance amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation; 26

27 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) Committed fund balance amounts constrained to specific purposes by a government itself, using its highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purposes unless the government takes the same highest level action to remove or change the constraint; Assigned fund balance amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority; Unassigned fund balance amounts that are available for any purpose; positive amounts are reported only in the general fund. The Academy s board establishes (and modifies or rescinds) fund balance commitments by passage of a resolution. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of a fund. Assigned fund balance is established by the Academy s board through adoption or amendment of the budget as intended for a specific purpose (such as the purchase of fixed assets, construction, debt service, or for other purposes). The Academy utilizes fund balance in the following order when an expenditure has been incurred for which more than one type of fund balance is available for that respective expenditure: Restricted, Committed, Assigned, Unassigned. In the general fund, the Academy strives to maintain an unassigned fund balance to be used for unanticipated emergencies. 7. Charter-wide-Net Position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. Net Position consists of the following: Net Investment in Capital Assets - consists of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets plus deferred outflows of resources less deferred inflows of resources related to those assets. Restricted net position consists of restricted assets less accrued interest for long term obligations that can only be used for debt service. Unrestricted net position consists of all other assets that do not meet the definition of restricted or net investment in capital assets. 27

28 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) 8. Use of Estimates The process of preparing general purpose financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Note 2. Stewardship, Compliance and Accountability Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America, except for capital outlay, which is reported in the function or activity it services. Annual appropriated budgets are adopted for the general fund. All annual appropriations lapse at fiscal year end. The Academy follows these procedures in establishing the budgetary data reflected in the financial statements: A. The management company submits to the School Board a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing them. The level of control for the budget is at the functional level as set forth in the combined statement of revenues, expenditures and changes in fund balances budget and actual general fund. B. Public hearings are conducted to obtain local public comments. C. Prior to July 1, the budget is legally adopted by School Board resolution pursuant to the Uniform Budgeting and Accounting Act. The Act requires that the budget be amended prior to the end of the fiscal year when necessary to adjust appropriations if it appears that revenues and other financing sources will be less than anticipated or so that expenditures will not be in excess of original estimates. Expenditures shall not be made or incurred, unless authorized in the budget, or in excess of the amount appropriated. Any expenditures in violation of the budgeting act are disclosed as unfavorable variances in the budgetary comparison schedule budget and actual (GAAP basis) general fund D. The management company is authorized to transfer budgeted amounts between major expenditure functions within any fund; however, these transfers and any revisions that alter the total expenditures of any fund must be approved by the School Board. 28

29 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) E. Formal budgetary integration is employed as a management control device during the year for the general fund. F. The budget as presented, has been amended. Supplemental appropriations were made during the year with the last one approved prior to June 30 th. G. The Academy had no general fund budget function overdrafts for the year ended June 30, Note 3. Deposits and Restricted Investments The Academy is governed by the deposit and investment limitations of Michigan State law which limitations are indicated in the Summary of Significant Accounting policies reported earlier. The deposits and investments held at June 30, 2017, and reported at fair value, are as follows: Type Carrying Value Deposits: Cash on Hand $ 300 Demand Deposits 811,010 Total Deposits $ 811,310 Reconciliation To Statement of Net Position: Current: Cash and Cash Equivalents $ 490,465 Noncurrent Restricted cash - debt service 320,545 Total $ 811,010 29

30 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) Interest Rate Risk The Academy will minimize interest rate risk, which is the risk that the market value of the securities in the portfolio will fall due to changes in market interest rates by structuring the investment portfolio so that the securities purchased can mature immediately when funds are needed to meet operating needs (sweep account). This avoids the need to sell securities in the open market, and investing operating funds primarily in short term securities, liquid asset funds, money market mutual funds, or similar investment pools and limited the average maturity in accordance with the Academy's cash requirements. Credit Risk State law limits investments in commercial paper and corporate bonds to a prime or better rating issued by nationally recognized statistical rating organizations (NRSROs). As of June 30, 2017, the Academy had no rated investments only cash and cash equivalents. Concentration of Credit Risk The Academy will minimize concentration of credit risk, which is the risk of loss attributed to the magnitude of the Academy's investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. All amounts are invested in the above cash equivalent, which is not affected by the market. Custodial Credit Risk Deposits In the case of deposits, this is the risk that in the event of a bank failure, the Academy s deposits may not be returned to it. As of June 30, 2017, $346,030 of the Academy's bank balances of $861,342 were exposed to custodial credit risk because they were not completely covered by the FDIC. The FDIC insures bank deposits up to $250,000 per financial institution. Foreign Currency The Academy is not authorized to invest in investments which have this type of risk. Fair value measurement The Academy is required to disclose amounts within a framework established for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted 30

31 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows: Level 1: Quoted prices in active markets for identical securities. Level 2: Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3: Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable or deemed less relevant, unobservable inputs may be used. Unobservable inputs reflect the Academy s own assumptions about the factors market participants would use in pricing an investment and would be based on the best information available. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Academy does not have any investments subject to the fair value measurement. Note 4. Receivables Receivables as of year-end were as follows: General Receivables: State Aid $ 429,278 Federal 35,356 Net total Receivables $ 464,634 All receivables were deemed collectible as of June 30, 31

32 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) Note 5. Capital Assets Capital asset activity for the Academy for the current fiscal year was as follows: Capital Assets not Being Depreciated: Balance Deletions/ Balance July 1, 2016 Additions Transfer June 30, 2017 Land $ 76,523 $ - $ - $ 76,523 Capital Assets Being Depreciated: Computers 113,554 43, ,007 Furniture, Fixtures & Equip. 218,857 24, ,570 Buildings 2,571, ,571,654 Building Improvements 144, ,734 Land Improvements 123, ,576 Subtotal 3,172,375 68,166-3,240,541 Less Accumulated Depreciation for: Computers 99,961 51, ,408 Furniture, Fixtures & Equip. 152,277 8, ,703 Buildings 569,156 11, ,433 Building Improvements 56,719 6,808-63,527 Land Improvements 65,511 5,571-71,082 Subtotal 943,624 83,529-1,027,153 Net Depreciable assets 2,228,751 (15,363) - 2,213,388 Net Governmental Capital Assets $ 2,305,274 $ (15,363) $ - $ 2,289,911 32

33 WILL CARLETON ACADEMY Notes to the Financial Statements June 30, 2017 (Continued) Depreciation for the fiscal year ended June 30, 2017 amounted to $80,596. expense was charged to programs of the primary government as follows: Depreciation Note 6. Long-Term Debt Governmental Activities: Instruction $ 23,476 Support 6,368 Unallocated $ 53,685 83,529 Long-term obligation activity can be summarized as follows: Governmental Activities: Beginning Ending Balance Balance Due Within July 1, 2016 Additions Reductions June 30, 2017 One Year Revenue Bonds $ 2,070,000 $ - $ 40,000 $ 2,030,000 $ 45,000 John Deere Loan - 21, ,140 4,374 Total $ 2,070,000 $ 21,869 $ 40,729 $ 2,051,140 $ 49,374 33